Page 2 of 2 China Inc taps into seam of bribery By Olivia Chung
Siemens Healthcare allegedly paid $64,800 to a doctor of the radiation
department at Songyuan Hospital in northeast China's Jilin province to sell a
$1.5 million magnetic resonance imagining system to the hospital, according to
US Securities and Exchange Commission (SEC) documents filed to a Washington
court in December, 2008.
Siemens Healthcare was suspected of paying five Chinese hospitals $14.4 million
from 2003 to 2007 to help it win orders for healthcare facilities worth $295
million, the SEC said.
In 2007, Lucent Technologies, then a US company and now part of French
telecommunications giant Alcatel-Lucent, agreed to pay
$2.5 million to settle charges that it violated US anti-bribery laws by paying
for about 315 trips taken by Chinese officials to secure millions of dollars in
contracts.
The SEC said Lucent spent $10 million on trips for 1,000 Chinese government
officials for sightseeing and entertainment trips to the US and other countries
between 2000 and 2003.
Metamorphosis of bribery
Payment for such trips reflects the changing forms corruption can take, said
Mei Xinyu, a senior researcher under the Ministry of Commerce. This hinders
Chinese authorities seeking to crack down on corruption, particularly when it
involved overseas businesses, Mei said.
"The big Chinese companies are more attracted by MNCs, which are not based in
China," he said. Bribery in recent years "has evolved from a mere cash payment
to various forms including free field trips, tuition fees for Chinese
officials' children studying overseas and free MBA courses".
Weak law enforcement is another reason behind the growing level of corruption.
US label maker Avery Dennison is a typical example.
A spokesman from Avery's Asia-Pacific Group confirmed last week that the
company had found some of its employees involved in bribery.
According to a document released by the SEC on July 28, Avery's Chinese
division paid about $30,000 to Chinese officials between 2002 and 2005 to win
business contracts. In one transaction, Avery China won a contract with a
state-owned company by indirectly paying an official about $25,000.
In August 2004, Avery China was awarded two government contracts to install
graphics on about 15,400 police cars by agreeing to increase the price of the
graphics by more than $41,000, which would be funneled to officials. The
company's Asia-Pacific Group discovered the scheme before the bribes could be
paid and blocked the illegal payments.
The SEC statement marked the end of the commercial bribery investigation into
Avery China after the company accepted a fine of $200,000 and promised to
forfeit future profits from illegal deals. The document didn't mention who the
Chinese officials were.
Qiao Xinsheng, professor of Zhongnan University of Finance, Politics and Law,
said Avery was giving up a pawn to save a chariot; that is, the company had
decided to take a loss in China, where it was doing little business, to protect
its more lucrative business in the US.
Avery turned itself in under an action based on the 1977 Foreign Corrupt
Practices Act aimed at combating business crimes overseas.
According to the act, if a US company is found to have been involved in
bribery, its headquarter and overseas companies will be the subject of criminal
and civil enforcement actions, resulting in large fines and suspension and
debarment from federal procurement contracting.
A company listed on a US exchange or with significant operations in the US,
such as Siemens, Europe's largest engineering company, which is listed in the
New York Stock Market, is subject to the act irrespective of where the
corruption occurs.
Safeguards in place
To safeguard themselves, some companies seek to instill anti-corruption ethics
in their workforce, implementing detailed compliance programs intended to
prevent and to detect any improper payments by employees and agents.
California-based Intel, the world's biggest maker of computer chips and which
employs more than 6,000 people in China, has stringent anti-corruption policies
and its employees around the globe are given regular briefings on them,
spokesman Chuck Mulloy said.
"We have external and internal auditors," he was quoted as saying by the San
Jose Mercury News. "If we ever find anything that is not in alignment with our
standards, we take action immediately."
Where companies do discover that their staff have been involved in corrupt
practices, many firms have turned themselves in, Qiao said.
In June last year, eight supervisors of Paris-based Carrefour stores in Beijing
were jailed for one to five years for taking bribes ranging from 17,000 yuan to
114,000 yuan from suppliers, a year after an internal graft crackdown by
Carrefour, Europe's largest retailer and with 27 outlets in China.
In June 2007, Carrefour called in the police to investigate about 20 people,
including 12 suppliers, after the company launched a 24-hour complaint hotline
for its suppliers in its department of purchasing.
Even so, the imbalance in punishment of the different parties involved is of
concern to Mei.
"Avery China ended up being fined, but how come the Chinese counterparts who
received the bribes get off free?" Mei said, and called for companies and the
officials involved in such cases to be named and punished.
"It's strange that Avery China faces punishment in the US, but not in China.
It's obvious that the absence of strong supervision and punishment from the
Chinese counterparts have posed huge negative effects to the country's efforts
to check corruption. Besides, only the individuals are the subject of criminal
enforcement actions, but not the enterprises or institutes," Qiao said.
For Siemens and Lucent, the corruption cases in the US are over, but the
investigations in China could help strengthen the country's capacity to fight
commercial corruption and punish those involved by drawing on the clues and
information gathered by authorities overseas.
In the Siemens case, only the former head of the radiation department at the
Jilin hospital was sentenced, being handed a 14-year jail term. In the Lucent
case, the company removed four executives from its China operation for
violations of US law, but no one has been arrested by Chinese authorities.
Despite the string of corruption cases, the US remains China's second-largest
trade partner, with bilateral trade volume totaling $132 billion, trailing the
European Union, which shares trade with China worth $159.97 billion.
Meanwhile, Rio stands firmly behind its four arrested staff members, with chief
executive Sam Walsh last Wednesday saying, "Rio Tinto will strongly support its
employees in defending these allegations. From all the information available to
us, we continue to believe that our employees have acted properly and ethically
in their business dealings in China."
A Hong Kong steel analyst, who asked to remain anonymous, last week said that
their arrest "certainly strengthened China's bargaining power" in the
continuing steel-price talks, even though the Chinese authorities said it was
an individual judicial case and not political.
Whatever the case, China's steelmakers and Fortescue Metals Group, Australia's
third-largest iron ore exporter, agreed at the weekend on a 35% price reduction
compared with last year. That is well down on the 45% the Chinese side had been
pursuing, but is better than the 33% cut that had been on offer from Rio Tinto.
The Chinese side will now ask Rio, Brazil's Vale and BHP Billiton for the same
deal, Shan Shanghua, secretary general of the China Iron & Steel
Association, said on Monday at a press conference in Beijing, Bloomberg
reported.
As a part of the Fortescue deal, China's lenders will arrange $6 billion of
financing to help the Australian company expand and compete better with the
larger Rio Tinto and BHP Billiton. That's a business sweetener - not
corruption.
Olivia Chung is a senior Asia Times Online reporter.
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